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No one knows exactly how much advantage floor futures traders have over OTC traders. But we do know that whatever that advantage is, it's significantly less now, thanks to J.Peter Steidlmayer, Kevin Koy and the CBOT. That's good news for you. This is great news for us. As a discount broker, we are in the business of serving knowledgeable independent traders.
1. Principles of the market
1. Purpose Introduction
There is a problem in the civilized world today that goes beyond trade, investment, or the pursuit of any material gain. As civilization develops, what is essential to individual ability and individual potential for success and personal satisfaction is lost. It involves the method by which a human being acquires knowledge, which affects his ability to make decisions with confidence
In less civilized societies of the past, people fed themselves, clothed themselves, protected themselves from hostile environments and invaders, and were forced to be self-reliant in almost every respect. His survival depends on his ability to make decisions based on his knowledge and understanding of the situation at hand. In order to gain knowledge, he observes, records and organizes his own existence and reality, and then draws logical conclusions. In other words, his self-reliance and ability to make good decisions come from his knowledge, which comes from his own personal experience, and from his long-term exposure to reality. Thus, human decisions used to be a direct result of their experience. As he continues to make the right decisions, his confidence in his ability to interpret reality and respond accordingly grows
In modern times, society's conception of knowledge does not come primarily from observation of reality. It comes from classroom education, learning from what teachers and authors teach. Knowledge—and society's assumptions about an individual's ability to make sound decisions—depends on the individual's formal classroom education and indoctrination in society. This is especially true in the study of finance and market behavior, where laboratory experiments are not part of the normal curriculum. However, what is taught in the classroom often has no practical basis. In other words, experience is discounted. This means that modern man's knowledge—and the way society measures its supposed decision-making abilities—is often unfounded in reality. In a civilized society, humans are not constantly forced to think for themselves.
So today we have two forms of knowledge: one that comes directly from observation of reality, and one that comes from derived sources such as teachers, books, TV shows or movies etc. Modern man relies heavily on the second form, often at the expense of being correct and accurate.
The problems posed by reliance on this second form of knowledge are addressed in the announcement on organized markets. Most of what has been written and promoted, while generally believed to be true, is illogical. (Surprisingly little published information has been compared, contemplated and revised with reality.) Because exposure and observation of market realities are discounted, very few published conceptualize and develop correct trading and investing understanding and method. So far, only one of the two possible logical approaches to organizing the futures, options, and stock markets has been proposed. This was introduced in the seminal book Securities Analysis by Benjamin Graham and William Dodd. Graham and Dodd argued that price and value are not necessarily equal in organized markets, and advocated that investors study fundamental (out-of-market) information to identify instances where price is below value. To the best of our knowledge, nothing has been published so far that goes beyond Graham and Dodd to properly explain how markets, especially organized markets, work in reality, and how, once one understands them, how Turning the chances of success in his favor in a big way.
Markets and market logic will present knowledge that is not distilled from previously taught knowledge. The knowledge presented in this book comes directly from experience. Unfortunately, this knowledge is now in the form of books, and once removed, it becomes part of the second type of knowledge.
Therefore, every reader must go beyond this book. Observe, reflect and analyze the reality in the markets you are familiar with and think for yourself. This should be possible because the knowledge presented in this book will be based on each reader's own experience. This book will demonstrate that all markets behave the same, a concept that should be understood by consumers who actually experience everyday markets.
This is not to say that the knowledge and concepts presented here will be easy to pick up and apply. In fact, they are expected to be difficult for all but the most enlightened organized market players to pick up. This is because a great deal of misknowledge has to be disregarded.
The knowledge presented in this book refutes the notion that markets move randomly and therefore cannot be understood. It refutes the idea that predicting market direction—a chance method that relies indirectly on individual forces—is a reliable way to approach markets. It refutes the idea of efficient market theory that markets are "invincible" because all opportunities are equal, and because prices and values are always the same in an organized market. It debunks some myths about risk. Finally, it refutes current trading methods that differ from sound investing methods.
Blinded by these assumptions, most people who approach organized markets are disoriented in the first place, unable to observe reality with a blank slate. For example, few participants who gained market knowledge from secondary sources understood the purpose of the market, while those who did gain market knowledge from experience immediately agreed with the statement that the purpose of the market and the reason for its existence was to facilitate trade. (This is a statement that readers of this book will quickly tire of.) In terms of facilitating trade, the most important function of the market—the key function of understanding it—is to provide the information that the market generates.
Another purpose of this book is to disprove the idea that market knowledge must be bought. We hope to spread the ability to understand and profit from the markets by showing that everyone has the ability to observe, reflect, analyze and make their own decisions in all market situations. We further hope that readers see the similarities in all things and conclude that, broadly speaking, most financial things are the same. The challenge for the reader in understanding organized markets is to think logically and consider all possible scenarios, putting aside current market approaches and learning to read them, monitor them through time.
We hope to demystify understanding organized markets. Understanding the market is nothing more than reading the information that the market generates. Market-generated information has been around since the very first market, and is available to anyone who wants to find or read it. This is a lost resource in the traditional financial world. While market-generated information is largely undiscovered or unnoticed in organized markets, for those few participants who understand the logic behind the market, know how to spot it, read it and interpret it, and ultimately know how to act on it For those, it is of inestimable value. The assumption behind relying on market-generated information (often done by a few very successful players who regularly approach the market) is that knowledge and understanding of the current situation is the key to unlocking the market's mysteries. Its imports far exceed the standard high, low and closing or last traded prices.
Market-generated information is markedly different from external information, information generated from related sources (such as the type of information studied by Graham and Dodd: balance sheets, industry growth, demand or harvest forecasts, new management, etc.). Therefore, the information generated by the market is not deleted, but the reality, which will only change over time. So it's not a potentially inaccurate forecast. (Consistently accurate predictions of future possibilities are beyond the reach of the average person, and poor predictions are often the opposite of value.)
The key to understanding market-generated information lies in organizing the seemingly chaotic, seemingly random market activity into meaningful, measurable segments of data that can be captured, defined, and monitored. This provides a solid basis for interpreting price data and allows a person to engage in a rational decision-making process - to act or not to act. Thus, the information generated by the market is nothing more than a time-series graph of trading data: price data plotted over time in a format that allows for statistical measurement and comparison. (In our case, we chose the bell curve, the normal distribution.)
As one of the broadest schools of natural philosophy, the law of normal error is prominent in human experience. It is an instructional tool for research in the physical and social sciences, as well as in medicine, agriculture and engineering.
Organizing data through bell curves, reading and understanding market activity simply requires being able to understand how, where, when and under what conditions participants use the market, and then being able to isolate or input factors that are important at the time, while filtering out those that are not. Important factor. When reading information generated from the market, anyone can relate price to value and apply current knowledge to their own particular situation.
In addition to the importance of understanding current knowledge and of arranging trading data into bell curves, the market approach presented in this book incorporates two fundamental equations. The first is used to break down and define market reality. The equation is simple: price + time = value. This statement is one that most smart people know, even obvious; subconsciously, we accept the price of a known product as value because we repeatedly charge that price over time. The same equation holds true for the most complex markets. It captures and defines the range of activity in the market, establishing a distinction between prices accepted as fair value and prices rejected by the market as temporarily unfairly above or below value for the current time period.
The second equation is useful for defining a framework for achieving outcomes. It shows that in a given market opportunity, outcome = market understanding x (you + trading strategy). This equation describes and pinpoints the areas of successful trading or investing.
While this book will provide all market understanding, the key to success remains the responsibility of the individual. This understanding will prevent individuals from placing themselves in a position where they must exceed reasonable expectations in order to be successful. He must have the ability to maintain self-discipline while incorporating the thought process into his own abilities.